Target putting sale of its credit card receivables on hold

Article by: JACKIE CROSBY , Star Tribune
Updated: January 18, 2012 - 8:19 PM

The move will cut into fourth-quarter profit, but company believes more "acceptable terms" of sale will be forthcoming.

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Minneapolis-based Target Corp. said Wednesday it is temporarily suspending efforts to sell its credit card receivables portfolio, but that it plans to resume talks with a "limited number of potential partners" later this year.

The discount retail chain had hoped to reach a deal in late 2011 or early 2012, but said in a statement that "based on discussions with potential partners, the company has determined that it is not in the best interests to finalize a transaction at this time."

Target also said it will pay a subsidiary of J.P. Morgan Chase $2.8 billion plus a "make-whole premium" to retire receivables financing before the 2013 payoff date. The move will reduce fourth-quarter earnings per share by about 8 cents. Target said that retiring the financing now will help it sell the portfolio down the road.

The company said a potential sale of its receivables could take place later this year or early in 2013. Target plans to retain control of its credit card operations beyond a sale of the receivables.

In 2008, Target sold almost half of its portfolio to J.P. Morgan for $3.6 billion, after being urged by activist investor William Ackman to unlock more shareholder value. This past November, Target said that the performance of the portfolio and conditions in the capital market made it attractive to sell the receivables, and indicated a deal was forthcoming.

Target, the nation's second-largest discounter, has seen delinquency rates improve in recent years as it tightened its requirements for credit card holders and wrote off much of the bad debt from the early days of the recession.

In December, 3.1 percent of accounts were three or more payments past due, compared with 4.2 percent a year earlier. The number of accounts past due for four or more months had dropped to 2.2 percent, compared with 3.1 percent a year earlier.

Jackie Crosby • 612-673-7335